A forum for associates to speak out about law firm issues

Negotiating for the prorated bonus

Law firms, unlike other companies or businesses, have approached associate salary the way hikers rely on the North Star: it’s visible, it’s fixed, and it looks the same to everyone in the Northern hemisphere. Associate salaries are generally well-known and publicized. All associates in a class make the same base salary, and that base increases in lockstep fashion as you become more experienced. When you accept an offer to join a law firm, there is no negotiation of the salary. Similarly, if you lateral as a mid-level or senior associate to another firm, your base compensation is set by what the firm is paying other associates in your class.

Does this mean there is no room for negotiation? As to your base salary, most likely the answer is no. But, what most entry-level associates and laterals leave on the table is a rarely-discussed topic: the prorated bonus.

The prorated bonus is the little-known ugly cousin to the annual bonus. Associates heap attention and fawn upon the popular annual bonus, even as that annual bonus inwardly laughs at how hard you may have had to work, and how much you sacrificed in order to claim it. In the meantime, the ugly cousin sits by itself in a corner of the room, neglected and unloved. Sure, it doesn’t look as attractive as the annual bonus, as it is only able to offer a fraction of the moolah and most associates barely know it exists.

But cast aside your assumptions and first impressions, and let’s take a closer look at the prorated bonus. First, what exactly is it? Like the name suggests, the prorated bonus is calculated pro rata based on the number of months you worked in a calendar year. It applies any time you work only a portion of the year, instead of a full calendar year; namely, when you first start work.

As a first year associate, you almost certainly start work in September or October. The bar exam ends at the end of July or beginning of August, and usually, law graduates go on their celebratory bar exam trip around the world afterwards. Even if you keep it local, there needs to be time for some R&R, and to get ready for a new life and new job. For laterals, unless you happen to make your move on January 1, you will also be starting work some time during the middle of a calendar year.

What most associates don’t realize is that, while you can’t really negotiate your base salary, law firms may have wiggle room when it comes to bonuses. It never hurts to ask whether the firm would be willing to provide you with a prorated bonus if you meet a prorated hours requirement. The worst that they can say is no, and often, you’ll be surprised at what they can do.

Here’s an example: Lisa the lateral is a third year associate fed up with life at her current Biglaw firm. She decides to move onto greener pastures, hires a headhunter, and lands a job offer at Biglaw2 firm. Biglaw2 wants her start date to be July 1. At Biglaw2, she would be eligible for an annual bonus of $20k if she hits 2,200 hours for the year. Unfortunately, she’s starting work in the middle of the year, and it’s impossible to bill 2,200 hours in six months. But what if she hits 1,100 hours in the six months that she’s at Biglaw2? Shouldn’t she be entitled to a prorated bonus of $10k?

Sure, $10k doesn’t sound as glamorous as $20k, but she also would only have worked six months, instead of a year, at Biglaw2. And $10k is real money, yet for whatever reason, most associates don’t ask for the prorated bonus when they begin work at a new firm. They simply leave that $10k on the table.

But there are even more advantages to the prorated bonus. First, it’s much easier to bill 1,100 hours in six months than 2,200 hours in 12 months. Why? The higher the billables, the more difficult it is to maintain that level over a prolonged, sustained period of time. Think about it this way. Have you ever billed a 300+ hour month? Probably, if you work at Biglaw. But have you billed 300+ hours a month every month for a year? Doubtful. That’s a 3,600 hour year. Doable, but unlikely for many reasons. The point is that you have a much better chance of making the prorated bonus than the annual bonus.

Second, billing high hours for a shorter period of time isn’t as onerous as billing high hours over a long period of time. Let’s say Lisa slacked off between January and June because she knew she was leaving her first Biglaw firm, and she spent a lot of time researching firms, talking to her headhunter, and interviewing. By July, when she starts her new job at Biglaw2, she’s recharged her batteries and is ready to go. Sacrificing personal time for short spurts (and then being able to recharge) is very doable. It’s when you sacrifice your sleep and other aspects of your life, day in and day out, seven days a week, 52 weeks a year, that these sacrifices become problematic.

If bonuses were paid out, on a prorated basis, every month, instead of in one lump sum at the end of the year, I’d select the prorated method in a heartbeat. But law firms don’t do it that way. Why? That’s the topic for another post.

But I hope that, after reading today’s post, you begin to appreciate the value of the prorated bonus. Suddenly, it’s no longer the ugly cousin, is it?